It was a personal finance blog,
now it is a just a spot for me to voice an opinion.

Monday, 11 February 2008

Fixing our home loan interest rate.

With the RBA increasing its policy interest rate to 7%, and the flow on effect on the major banks increasing their interest rate by 0.30% ( which is 0.05% more than the RBA's increase), it is time for us seriously investigate fixing our home loan rate. As this table of previous rates shows, it has increased eleven times over the last six years. The article in the The Age also predicts that the interest rates is due for an increase on another four future occasions, so we are really preparing ourselves for the worsening conditions.

With the loan package that we are currently on, we are currently enjoying a 0.6% discount on the normal variable interest rate, which is below the current Fix interest rate. however the beauty of a fix interest rate is that it is fixed and won't increase in line with the predicted RBA's increases.

What factors do I need to make sure that switching over to a fix interest rate is the better way to go.

The fee incurred to switch the home loan over to a fix interest rate is smaller than the savings in the interest repayments. I am pretty confident that it will be.

The length of the fix interest loan will need to be carefully considered. If the length of the term is too long, we may miss the drop in th interest rate when it falls down, however i don't this is likely within the next six to seven years. If the length of the term is too short, we risk going into a higher interest rate when we exit the fix loan. We will probably be negotiating for a 3 or 4 year term.

The current fee structure does not change significantly as we quite like it. We get $0 fee on any of our account at our bank, because of the home loan that we have.

We are still able to pay extra into our home loan.

If the interest rate is like to increase another four times, and we are able to stay at the current rate, we are like to save about $200 per month. This is something worth striving/negotiating for.

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About me and this blog

This blog used to be a personal finance blog, but since moving to Germany, it is not really appropriate any more. Rather than to start a new blog and loose all these articles, I am just to evolve this blog. It will now just be a forum of my views and my observations.

By the way, I am not in any way qualified to give financial advice. If you gained some positive insights from my articles, I am really happy for you, but seek independent advice from a qualified adviser before acting on it.